Deck 12: Intangibles

Question 1

Which of the following relationships between category of intangibles and amortization is false?

A) I
B) II
C) III
D) IV

Answer 1

C

Question 2

Which of the following costs should always be expensed as incurred?

A) the costs of externally acquired identifiable intangible assets
B) the costs incurred directly associated with establishing and successfully defending the rights associated with internally developed identifiable intangible assets
C) the costs of internally developed unidentifiable intangible assets
D) the costs of externally acquired unidentifiable intangible assets

Answer 2

C

Question 3

Intangible assets are initially recorded at

A) cost
B) expected future value
C) expected present value of expected cash flows
D) present fair value

Answer 3

A

Question 4

GAAP requires companies to disclose any costs of research and development acquired and written off as well as where the information can be found on the income statement.

Question 5

Engineering follow-through in an early stage of commercial production can be included in R&D.

Question 6

Unidentifiable intangible assets are intangible assets that can be separated from the company and sold, transferred, licensed, rented, or exchanged.

Question 7

Purchased intangible assets are generally expensed at their acquisition costs because the future economic benefits associate with them are difficult to measure.

Question 8

A copyright is granted by the federal government giving the owner exclusive rights to sell, publish, and control the artistic product for the life of the creator.

Question 9

Which of the following is not required to be disclosed in an entity's financial statements or accompanying footnotes?

A) the total amount of research and development costs charged to expense during the current year
B) the method used to amortize the entity's intangible assets
C) a material amount of internally developed goodwill
D) accumulated amortization on the entity's intangibles as of its year-end

Question 10

Which of the following is a factor to ber considered when estimating the useful life of an intangible asset

A) the expected life of the asset
B) the expected life of another asset that is related to the life of the intangible asset
C) any legal provisions that enable the extension of the asset's legal life without substantial economic cost
D) all of the above

Question 11

Legal work in connection with patent applications or litigation, and the sale or licensing of patents is excluded from R &D.

Question 12

For intangible assets that are amortized, the total cost, accumulated amortization, amortization expense, and estimated amortization expense for the next 5 years needs to be disclosed.

Question 13

Which of the following characteristics is not common to both tangible and intangible assets?

A) held for use and not for investment
B) expected life of more than one year
C) derive value from the ability to generate revenue
D) may have value only to a particular company

Question 14

Which of the following groups would be classified as intangible assets for financial accounting and reporting purposes?

A) long-term notes receivable, copyrights, goodwill, and trademarks
B) patents, computer software costs, franchises, copyrights, goodwill and trademarks
C) computer software costs, research and development costs for internally developed patents, patents, and goodwill
D) organization costs, goodwill, costs of employee training programs, and trademarks

Question 15

Identifiable intangible assets would include all of the following except

A) patents
B) trademarks
C) goodwill
D) franchises

Question 16

Which of the following is false regarding the accounting for the cost of intangibles per GAAP?

A) I
B) II
C) III
D) IV

Question 17

The costs associated with internally developed goodwill are capitalized.

Question 18

U.S. GAAP allows a company to capitalize more of the costs of internally generated assets than allowed under IFRS.

Question 19

The cost of an internally developed unidentifiable intangible is expensed as incurred. Accordingly, which one of the following costs would be expensed in the year it was incurred?

A) legal cost of obtaining a patent
B) cost of improvements with a three-year life made to an asset that is being leased by the company for a five-year period
C) deferred charges
D) cost incurred to train management-level employees

Question 20

Trademarks are considered to have an indefinite life and are therefore not subject to amortization.

Question 21

At the date of purchase, materials, equipment, facilities, and intangibles purchased from others that have no alternative future uses in research and development or other activities should be

A) capitalized
B) charged directly to retained earnings
C) included in R&D expense immediately
D) charged as a loss from continuing operations

Question 22

Which of the following expenditures cannot be included in R&D costs?

A) indirect costs
B) intangibles purchased from others
C) personnel costs
D) contract services performed for others

Question 23

GAAP requires that research and development costs be

A) capitalized
B) expensed as incurred
C) accumulated until the existence of future benefits is determined
D) expensed in part and capitalized in part

Question 24

Which of the following methods is commonly used to amortize intangible assets over their useful lives?

A) declining balance
B) straight line
C) annual review for impairment
D) none of these since intangible assets are not amortized

Question 25

Burger Co. incurred the following costs during 2013 in the development and production of a new product:
How much should be included in R&D expense for 2013?

A) $120,000
B) $630,000
C) $750,000
D) $700,000

Question 26

Which amortization method should be used for intangibles that are amortized?

A) a method based on the expected pattern of benefits to be produced by the asset
B) a method based on an annual review for impairment
C) the straight-line method; all others are inappropriate
D) any method is appropriate

Question 27

The following items are excluded from research and development costs except

A) ongoing efforts to refine an existing product
B) design of tools involving new technology
C) routine design of tools
D) quality control during commercial production

Question 28

Which of the following research and development costs should always be capitalized?

A) costs of intangibles purchased from others
B) costs of materials, equipment, and intangibles with alternative future uses purchased from others
C) costs of equipment with an expected life greater than three years
D) costs of contract services purchased from others

Question 29

Which of the following describes the appropriate accounting for intangible assets with a finite life?

A) I
B) II
C) III
D) IV

Question 30

Which of the following accounting principles or conventions is contradictory to the GAAP requirement to expense R&D costs immediately?

A) historical cost principle
B) comparability
C) conservatism
D) matching principle

Question 31

The following items are included in research and development costs EXCEPT

A) legal work in connection with patent application
B) design of prototype models
C) evaluation of a product
D) research aimed at discovery of new knowledge

Question 32

Research and development costs are

A) capitalized and depreciated over the period which they benefit
B) expensed as incurred
C) added to the cost of the invented product
D) added to the cost of the invented product if a reliable date of actual production is known

Question 33

If a research and development cost has alternative future uses, then the company

A) expenses the cost in the period incurred
B) follows normal accrual procedures
C) adds the cost to inventory
D) adds the cost to property, plant, and equipment

Question 34

For financial reporting purposes, GAAP requires organization costs to be

A) expensed in the period in which they are incurred
B) capitalized and amortized over 20 years
C) capitalized and amortized over the first five years of the company's existence
D) capitalized and treated as an intangible asset with an indefinite life

Question 35

Related to in-process R&D, the acquiring company may not

A) capitalize it
B) treat it as an intangible asset
C) increase the amount of goodwill
D) establish a patent in the name of the purchased company

Question 36

At the date of purchase, materials, equipment, facilities, and intangibles purchased from others that have alternative future uses in research and development should be

A) capitalized
B) charged directly to retained earnings
C) included in R&D expense immediately
D) charged as a loss from continuing operations

Question 37

Costs for which of the following activities should not be included in research and development (R&D)?

A) modification of the formulation or design of a product or process
B) design of tools, jigs, molds, and dies involving new technology
C) design, construction, and testing of preproduction prototypes and models
D) trouble-shooting in connection with breakdowns during commercial production

Question 38

Costs for which of the following activities would not be included as part of research and development (R&D) costs?

A) testing in search for or evaluation of product or process alternatives
B) adaptation of an existing capability to a particular requirement or customer's need as part of a continuing commercial activity
C) searching for applications of new research findings or of other knowledge
D) design, construction, and testing or preproduction prototypes and models.

Question 39

The Chambers Company was formed in early 2017. At the time of formation, Chamber spent the following amounts: accounting fees, $4,000; legal fees, $8,000; stock certificate costs, $3,000; initial franchise fee, $10,000; initial lease payment, $5,000; promotional fees, $3,000. Chamber intends to capitalize and amortize intangibles over the maximum allowable period in accordance with generally accepted accounting principles. Based on this strategy, what is Chambers's expense associated with organization costs in 2017?

A) $ 6,000
B) $18,000
C) $28,000
D) $33,000

Question 40

The Wagner Company made the following expenditures for research and development early in 2014: $80,000 for materials, $100,000 for contract services, $80,000 for employee salaries, and $800,000 for a building with an expected life of 20 years to be used for current and future research projects. Wagner uses straight-line depreciation. The company allocated $20,000 in overhead to research and development. What is Wagners' research and development expense for 2014?

A) $200,000
B) $220,000
C) $320,000
D) $700,000

Question 41

During 2013, Frank Company incurred $200,000 in legal fees in defending a patent with a carrying value of $3,500,000 against an infringement. Farver's lawyers were successful with the defense of the patent. The legal fees should be

A) expensed in 2013 and classified as ordinary expense
B) classified as an extraordinary item on the income statement for 2013
C) capitalized and amortized over the remaining legal life of the patent
D) capitalized and amortized over the remaining economic life or legal life of the patent, whichever is shorter

Question 42

The Shane Company began business early in 2013, when Shane paid an initial fee of $100,000 to purchase a franchise. In forming the company, Shane also spent $11,000 on legal fees and $4,500 on accounting fees. During the year, Shane spent $7,500 on product development and paid $10,000 in continuing franchise fees. What amount should Shane capitalize for intangible assets in 2013?

A) $100,000
B) $115,500
C) $123,000
D) $133,000

Question 43

Which of the following statements regarding intangible assets is true?

A) The expected useful life of an intangible asset is generally easier to estimate than the expected useful life of a tangible noncurrent asset.
B) The cost of an intangible asset is not permitted to be amortized for income tax purposes.
C) Intangible assets have a lower degree of uncertainty with regard to their expected future benefits than tangible noncurrent assets.
D) The accumulated amortization for intangible assets that are amortized must be disclosed.

Question 44

In January 2014, the Jennifer Corporation purchased a patent for $231,000 from Travis Company that had a remaining legal life of 14 years. Jennifer estimated that the remaining economic life would be seven years. In January 2018, the company incurred $30,000 in legal costs to defend the patent from an infringement. Jennifer's lawyers were successful, and the remaining years of benefit from the patent were estimated to be six years. The patent amortization expense for 2018 is

A) $ 7,615
B) $ 9,923
C) $16,500
D) $21,500

Question 45

Which of the following is not a required disclosure regarding goodwill for each period a company presents a balance sheet?

A) the amount of goodwill acquired
B) the amount of goodwill sold
C) the amount of any impairment loss recognized
D) the amount of any goodwill included in the disposal of a reporting unit

Question 46

In 1975, Riveria Company had acquired copyrights for $750,000 on several literary works from some obscure 18th century authors. These copyrights were fully amortized by 2015. In early 2015, a new anthropological discovery made these copyrights worth $2,500,000. As a result, Riveria should report which of the following in its financial statements for 2015?

A) $2,500,000 as a holding gain
B) $ 750,000 as copyrights-based recovery of value limited to historical cost
C) $2,500,000 as an extraordinary item
D) Cannot be recognized under U.S. GAAP in the financial statements

Question 47

A patent is amortized over its expected useful life or 20 years. The expected useful life can be impacted by all of the following except

A) a unsuccessful lawsuit against a competitor
B) the federal government renewing the original patent
C) technical innovations by a competitor
D) product improvements by the patent holder

Question 48

During the period from 2013 to the end of 2014, Excellence, Inc. spent $90,000 on research and development for an invention that was patented on January 1, 2015. Excellence estimated that the patented invention would be useful in its production for 10 years. At the beginning of 2017, Excellence paid $16,000 in legal fees in a successful defense of the patent. What is Excellence's patent amortization expense for 2017?

A) $25,000
B) $11,000
C) $10,600
D) $ 2,000

Question 49

The amortization period for a patent is

A) indefinite; patents should be reviewed for impairment annually
B) 20 years
C) 20 years or the expected useful life of the patent, whichever is longer
D) 20 years or the expected useful life of the patent, whichever is shorter

Question 50

On January 1, 2013, Moose Co. purchased for $360,000 a patent that had been granted two years earlier. On January 1, 2015, legal costs of $64,000 were incurred in a successful defense of the patent. Assuming the maximum period allowable is used for patent amortization, what is Moose's patent amortization expense for 2015?

A) $18,000
B) $20,000
C) $21,555
D) $24,000

Question 51

Debbie acquired a franchise to operate a donut shop from Dollar Donuts, Inc., for $100,000. She incurred an additional $4,000 in legal costs to negotiate the terms with the franchiser. In five years, the franchise contract will be renegotiated. The current contract also states that there will be a $3,000 annual fee plus a two percent charge based on the store's annual revenue, which is expected to average 90,000 per year. The franchise cost that should be capitalized is

A) $ 88,000
B) $ 92,000
C) $100,000
D) $104,000

Question 52

Which of the following is not a required disclosure regarding intangible assets in the period a company acquires intangible assets?

A) the cost of any intangible assets acquired, separated into assets subject to amortization, assets not subject to amortization, and goodwill
B) for assets subject to amortization, the residual value and the weighted-average amortization period
C) the cost of any research and development acquired and written off, and where it is included in the income statement
D) the rate of return used to estimate the value of goodwill purchased

Question 53

D Company registered a patent on January 1, 2015. C Company purchased the patent from D Company for $450,000 on January 1, 2020, and began to amortize the patent over its remaining legal life. In early 2021, C Company determined that the patent's economic benefits would last only until the end of 2025. What amount should C Company record for patent amortization in 2021?

A) $90,000
B) $30,000
C) $70,000
D) $84,000

Question 54

Development costs related to computer software that is to be sold, leased, or otherwise marketed should be accounted for in which of the following ways?

A) All software development costs should be recorded as R&D expense.
B) All software development costs should be capitalized.
C) All software development costs should be recorded as R&D expense until technological feasibility is established.
D) All software development costs should be recorded in R&D expense until the product is available for general release to customers.

Question 55

Which of the following is not a required disclosure regarding intangible assets that are amortized for each period a company presents a balance sheet?

A) the total cost
B) the accumulated amortization
C) the amortization expense
D) the estimated amortization expense for the next ten years

Question 56

Based on GAAP, most software development costs are likely to be

A) expensed as R&D costs
B) allocated to inventory and expensed to cost of goods sold when the software is sold
C) capitalized and amortized over a 40-year period
D) capitalized and amortized over a relatively short period, such as five years

Question 57

In January 2014, Western Co. purchased a patent for $750,000 that had an estimated remaining economic life of ten years. On January 2, 2017, the company incurred $140,000 in legal fees to successfully defend the validity of the patent. In January 2019, the company incurred $88,000 in legal fees in a new infringement lawsuit. In this situation, the lawsuit was lost, and the patent was determined to be worthless as a result. The expense to be recognized in 2019 by Western with regard to the patent is

A) $750,000
B) $150,000
C) $475,000
D) $563,000

Question 58

During 2013, Debbie Company incurred $240,000 in legal fees in defending a patent with a carrying value of $4,500,000 against an infringement. Debbie's lawyers were not successful with the defense of the patent. The legal fees should be

A) expensed in 2013 and classified as ordinary expense
B) classified as an extraordinary item on the income statement for 2013
C) capitalized and amortized over the remaining legal life of the patent
D) capitalized and amortized over the remaining economic life or legal life of the patent, whichever is shorter

Question 59

Which of the following is an intangible asset that is not typically amortized?

A) patent
B) copyright
C) franchise
D) goodwill

Question 60

Which of the following statements concerning intangibles is true?

A) A copyright should be considered an intangible with an indefinite life.
B) Organization costs must be expensed as incurred.
C) A patent should be amortized over the shorter of the inventor's life or its economic life.
D) The registration of a trademark or trade name lasts for 20 years and is nonrenewable.

Question 61

Which of the following statements regarding goodwill is false?

A) Goodwill is never amortized for financial reporting purposes.
B) A company must review its goodwill for impairment annually.
C) A company must review its goodwill for impairment whenever events or changes in circumstances occur that would more likely than not reduce the fair value below its carrying value.
D) A company records goodwill at the time that it acquires another company or at the time it determines that material intellectual capital exists in its employees.

Question 62

The Clementine Company agreed to purchase the Orange Company for $650,000. At the date of purchase, Orange had current assets with a fair market value of $400,000, noncurrent assets (including no marketable securities) with a fair market value of $700,000, and liabilities of $500,000. In accounting for this transaction, Clementine should

A) record noncurrent assets at $650,000
B) record a debit of $50,000 as a loss on the purchase
C) record goodwill of $50,000 to be reviewed annually for impairment
D) record current assets at $550,000

Question 63

Costs associated with various intangibles of a company may either be expensed when incurred or capitalized and amortized. Such costs might be recorded in any of the following ways: Required:
Indicate how each of the following costs should be recorded by placing the appropriate letter (a-d) in the space provided.

Question 64

Which of the following statements concerning internally developed goodwill is true?

A) It is a separately identifiable asset.
B) It is capitalized at its cost.
C) The costs associated with its development are expensed as incurred.
D) Measuring its value is relatively easy and faithfully represented.

Question 65

Certain activities are listed below. Required:
List by letter the activities that would be considered in determining R&D costs.

Question 66

Trademarks or trade names

A) must be renewed every 35 years
B) can be considered intangibles with indefinite lives
C) are developed internally and thus should not have any related costs capitalized and amortized
D) are synonymous with internally developed goodwill

Question 67

Internal use software costs are

A) always expensed
B) always capitalized
C) capitalized once the preliminary cost is completed
D) capitalized once the preliminary cost is completed and the software will be used to perform the function intended

Question 68

Which statement about negative goodwill is true?

A) Negative goodwill is the amount by which the fair value of identifiable net assets acquired exceeds the price paid.
B) Negative goodwill results when the cash paid for a company exceeds the fair market value of the net assets acquired.
C) Negative goodwill should be recorded as a direct credit to retained earnings.
D) Negative goodwill should first be allocated proportionately to reduce the cost of all assets acquired (except long-term investments in marketable securities) on the basis of their relative market values.

Question 69

Consider the following information from a company's records for 2014: Required:
Compute the amount of R&D expense for 2014. The company normally uses straight-line depreciation for plant assets.

Question 70

Which of the following is not an internally developed intangible?

A) unique customer experience
B) advantageous geographical location
C) reputation for quality products
D) recorded goodwill

Question 71

As computer software to be sold, leased, or otherwise marketed is developed, software production costs should be accounted for according to which of the following?

A) I
B) II
C) III
D) IV

Question 72

Impairment losses may be reversed under

A) I
B) II
C) III
D) IV

Question 73

The Lane Company incurred the following expenditures in January 2014: (1) research and development costs of $510,000 that resulted in a new product that was patented near year-end, (2) $12,000 in legal fees to have the patent registered, (3) $100,000 in advertising costs to develop a trademark for the newly patented product, (4) Legal fees of $8,000 incurred with the registration of the trademark, which will only be used for five years, and (5) $25,000 of advertising costs to promote its good name. Benefits to be derived from the patent are expected to last for five years. The president believes the promotion of Lane's good name will benefit the firm for three years. How much amortization expense should Lane recognize for 2014?

A) $ 1,000
B) $ 4,000
C) $ 9,000
D) $25,000

Question 74

The cost of a copyright should

A) be amortized over a period not to exceed the life of the author plus 50 years
B) be amortized over a period not to exceed 20 years, unless the right is renewed
C) not be amortized and the cost should be capitalized as an asset with indefinite life
D) be amortized over a period not to exceed its economic life

Question 75

The determination of impairment losses differs under IFRS versus GAAP in that

A) only GAAP permits a value-in-use estimate
B) only IFRS employs a disposal approach as a measure of fair value
C) only GAAP compares the fair value to cost
D) only IFRS permits a value-in-use estimate

Question 76

The following costs were incurred by Mark Corporation during 2014:

Question 77

Consider the following information from a company's records for 2014:

Required:
a.Compute the amount of R&D costs that should be classified as expenses in determining 2014 net income.
b.For any listed item not included in your answer to requirement 1, provide the rationale for not expensing it.

Question 78

Copyright cost is amortized over

A) its expected useful life
B) its expected useful life if that life is less than 20 years
C) its expected useful life if that life is less than 30 years
D) the life of the author plus 70 years

Question 79

An inconsistency in accounting theory can occur because

A) internally developed goodwill is expensed, while purchased goodwill is capitalized
B) both internally developed goodwill and purchased goodwill are expensed
C) internally developed goodwill is capitalized, while purchased goodwill is expensed
D) both internally developed goodwill and purchased goodwill are capitalized

Question 80

Which statement regarding goodwill is true?

A) Goodwill is an unidentifiable intangible asset.
B) Internally developed goodwill should be capitalized while purchased goodwill should be expensed.
C) Goodwill can be defined as the value attached to the ability of a company to earn a higher than normal rate of return on the book value of its identifiable assets.
D) In some situations, GAAP and IFRS requires that negative goodwill be recorded.